Royal Dutch Shell chief executive Peter Voser has called on the government to implement improved tax and regulatory frameworks within the resources sector to allow Australia’s existing pipeline of investments to be developed, particularly as global demand for liquefied natural gas doubles over the next decade. “The policy decisions made today will have a profound effect on your economy and society,” Voser said.
New research from McKinsey & Company shows that high costs are putting Australia at risk of losing over $100 billion of upcoming resources investments. Workplace disputes, overlapping green tape and high labour costs are forcing companies to reconsider their business outlook in Australia, which has “lost a crucial pricing advantage when shipping gas to Asia”. Chevron Australia managing director Roy Krzywosinski called on wide-ranging policy reform to ensure the next wave of investments are captured, while Origin Energy chief executive Grant King said that clearing obstacles to development and improving productivity was in the national interest.
Harsh Mishra, Adani’s chief executive officer for Australia, has slammed federal environmental laws for increasing risks to investors and blocking resources projects from development. Mishra said the proposed Greens bill to change the Environment Protection and Biodiversity Conservation Act and block projects along the Great Barrier Reef coastline should be dumped as it “has the potential to seriously jeopardise investment in Queensland and Australia”.
Santos chief executive David Knox has taken aim at the federal government for undermining gas projects by creating “a regulatory mess” of new rules and measures. Knox urged the government to end the unnecessary duplication of state and federal regulation, which has already delayed huge investments in Australia. “We need to remove, wherever we can, overlapping legislation,” Knox said.
New South Wales Resources and Energy Minister Chris Hartcher has blamed “extremist” green groups for the regulatory tightening on major gas projects in February this year. Hartcher said that opponents, who want to shut down all fossil fuels across Australia, consistently refuse to compromise in any debate. “It doesn’t matter what concessions are given to that group, it doesn’t matter how you try and rationalise with that group, they will simply argue that fossil fuels need to be eliminated,” he said. Hartcher also mentioned that this “hard core” attitude reflects a sentiment that is at odds with the majority of Australians, “The great mass of the community want economic development, want jobs, want income, want secure life for their families and themselves”.
The Productivity Commission has “sounded the alarm” over the decline in the resources sector, calling for an overhaul of regulation within the minerals exploration industry. A draft report released last week found the rate of new discoveries in Australia is falling rapidly due to rising expenditure in other aspects of business. The Minerals Council of Australia told the Productivity Commission inquiry in its submission that Australia’s share of resources discoveries in the Western world had more than halved, while drilling costs per metre had tripled since 2006.
The Australian Financial Review
Industry executives and investors expect that few of the $73.5 billion of Australia’s proposed coal projects will be developed due to worsening market conditions. BHP Billiton has ruled out any further growth in the short to medium term in its coal operations, and has flagged the potential for more divestments. Wesfarmers has also said it had no plans to pursue even low-cost brownfield expansions in Australia in the current climate, while AMP Capital investors senior portfolio manager John Payne said he would be “very surprised” if boards approved any new coal projects.
The Australian Financial Review also reported on Peter Voser’s visit to Australia this week, saying he had some serious concerns about the industry’s competitiveness in Australia, particularly as new gas resources continue to be found around the world. “We need to work together in a constructive way between government, industry, society, unions to make sure that Australia stays competitive against the competition from east Africa, from Canada and from the US,” Voser said. “Clearly the costs in those countries are not as high as here in Australia given the productivity is actually higher”.
Federal Resources Minister Gary Gray has criticised environmental groups this week, accusing green activists of spreading “fear and confusion” about the coal seam gas industry instead of trying to improve the regulation and protection of the environment. Gray called on the industry to unite and put forward its case “with vigour and courage” to tackle the activism. “Industry needs to argue its case in every possible way, to stand aside from necessary commercial rivalries for the common good, and accept that these days a community perception in one part of the country becomes a problem for all,” Gray said. Gray also admitted that unreasonable pay demands from trade unions were a key factor in driving up costs and contributing to some of the recent blow-outs experienced by the LNG industry.
British company BG has also called on the resources industry to increase its defence against “exaggerated claims” by opponents of coal seam gas, another signal of the rising tensions between industry and environmental activists. QGC managing director Derek Fisher said they had underestimated how unwilling anti-coal seam gas lobbies would be to engage in fact-based debate, and that tightening regulation had already led to escalating costs of up to 30 per cent for its Queensland Curtis project. Queensland Deputy Premier Jeff Seeney was also critical of the unreasonable demands of environmental groups, “Let there be no doubt that there is a concerted and coordinated campaign under way from the radical Greens to attack, delay and halt any and every development proposal in the resources sector,” Seeney said.
A report released by Ernst & Young’s global mining and metals team predicts that Australian resources companies will face unprecedented volatility in commodity prices over the next few years as Chinese demand slows and the Australian dollar fluctuates. Economists are also concerned that a 7 per cent drop in consumer sentiment may reflect the inability of non-resource sectors to fill the shortfall in lower resources investment, despite the RBA’s lowering of interest rates to spur economic activity.
Goldman Sachs have predicted the recent dip in iron ore prices will be “shorter and shallower” than the downturn experienced in the second half of 2012. “As iron ore supply growth starts to outpace demand, buyers are increasingly able (and willing) to drive the spot price lower by deferring spot purchases,” said Goldman Sachs analyst Christian Lelong. Goldman Sachs has forecast an average iron ore price of $US139 a tonne this year, falling to $US115 a tonne next year and $US80 a tonne in 2015.
The West Australian
The Pilbara Development Commission chief executive Ken King wants mining companies in Western Australian to encourage workers to buy homes in the Pilbara, insisting the region would benefit from more owner-occupiers rather than property investors who make substantial gains from renting to miners. King welcomed a recent drop in rent and house prices, saying it was great news for the community. “Surely that’s in the best interests of the industry as well. It’s got to be in their interests to keep people in the Pilbara”.
At their 53rd annual conference last week, Australian Petroleum Production and Exploration Association chief executive David Byers demanded more government support in developing policies that allow the industry to grow instead of holding it back and delivering uncertainty. Byers said the sector wanted a more competitive tax system and changes to areas surrounding exploration incentives and depreciation, as well as expressing concern towards the possibility of gas reservation policies. Resources Minister Gary Gray did, however, announce opposition to domestic gas reservation, saying they would create uncertainty and deter investment, adding further pressure to government-business relations. “The Australian Government does not agree that domestic gas reservation would keep gas prices down or put more gas into the market,” Gray said.
Western Australia’s Department of Mines and Petroleum executive director Bill Tinapple has contributed to the debate and taken aim at the environmental movement, accusing green groups of deliberately circulating false and misleading information. Tinapple said the department would try and counter the misinformation while adhering to a fair regulatory process. “WA’s rigorous regulatory framework for petroleum activities, including fracking, has the strongest chemical disclosure requirements of any Australian jurisdiction, as well as rigorous environmental and safety approval processes and international standards for well design and integrity,” Tinapple said.
The NT News
A memorandum of understanding has been signed by Federal Resources Minister Gary Gray and Northern Territory Chief Minister Adam Giles to streamline gas developments to ensure long-term future supply. The memorandum entails a coordinated approach to promoting exploration and fast-tracking projects. As a result of the decision to give up 10 years’ worth of domestic gas supply to Rio Tinto in order to keep their Gove refinery open, the Territory would run out of gas in 12 years’ time if no replacement is found. Giles admitted that “things are slow” in the current approvals system.